SMSFs: To Corporate Trustee or not to Corporate Trustee

It often surprises advisers that in 2018 we still have 90% of SMSFs being established with individuals instead of a corporate trustee.

While it saves on the set up and ongoing costs (that are incurred in running another company), the long term costs could be higher.

There are many benefits to having a corporate trustee for a SMSF, and our SMSF team here at businessDEPOT feel so strongly about it that they are hesitant to establish a fund without one.

Having a corporate trustee for a SMSF is often cited by many advisers in this space as best practice. Importantly, a corporate trustee also provides you with so many other benefits. These include:

1. Limited liability protection for the trustee where the SMSF owns real property. Many SMSFs own direct property, and many people forget that a landlord can be sued under many circumstances. Having a corporate trustee can limit your personal exposure and provide you with further asset protection.

2. With the introduction of a more workable penalty regime for SMSFs trustees are personally liable if a breach occurs within the super fund. This penalty can be levied per trustee, so 2 individual trustees can receive the penalty twice vs. a corporate trustee only being exposed to a singular penalty.

3. Estate planning and loss of capacity is often an afterthought when establishing an SMSF. However, it really should be front of mind. All members of a SMSF must also be either directors of the corporate trustee or an individual trustee. In the event of loss of capacity or death an LPR can take over this role.

If you have a corporate trustee, this can be done via lodging a simple form with ASIC.

With individual trustees, you would need to also change every asset holding over to the new trustee's name. This can be a very onerous process, and one that you can have to do more than once if you don’t make the switch to a corporate trustee.

4. The same scenario can occur above, via a divorce situation or a change of membership with in the SMSF.

5. A ‘special purpose’ corporate trustee has cheaper ASIC fees [ie. Only $48 per year] and can make administration of the fund so much easier, as you are less likely to make a mistake on the ownership of an asset or allocation of income from the fund.

Making the switch to a corporate trustee now [or getting one from the start] can potentially save you a lot of time and hassle in the future. Given that the general trigger points to change a trustee are already at a stressful time [such as death, loss of capacity or a marriage breakdown], we recommend you are pro-active and seek advice about whether making this sort of change now is appropriate for your circumstances.

Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed adviser or legal practitioner to take into account your particular objectives, circumstances and individual needs.